What is Oil and Gas Law?
Oil and gas law is the area of law that governs oil and gas production. Oil and gas laws determine who owns the right to mine for oil and gas. It determines what conditions miners have to follow when they harvest oil and gas. The field of oil and gas law is a mix of common law, statutory law and administrative regulations that govern the mining and harvesting of these natural resources in the United States.
What are oil and gas rights?
Oil and gas rights are part of the broader topic of mineral rights. A parcel of real property may be rich in natural resources like precious metals or water. Among the various types of natural resources that might exist on or within a property are oil and gas. As energy-producing substances, oil and gas can be lucrative for those who capture them for consumption.
Because there’s a lot to gain for miners, and because oil and gas mining requires careful planning and procedures, oil and gas law is a field of law in its own right. Most oil and gas laws are state laws. The federal government has relatively little to say about oil and gas law, but it is involved in leasing and permitting on federal lands. The federal government also regulates offshore drilling. Oil and gas laws determine who may mine for oil and gas, how they may go about mining and what happens when disputes occur.
Who can own oil and gas?
Any entity that can own property in the United States can also own oil and gas rights. A person may own oil and gas rights. A group of people may own oil and gas rights together. Corporate entities may own the right to mine. In addition, federal, state and local governments can be owners. A lot of oil and gas mining is done through lease agreements to third party oil and gas production companies.
Who owns the natural resources underneath a piece of land?
Oil and gas law begins by determining who owns the resources that might exist beneath a piece of land. In fact, a significant portion of the practice of oil and gas law involves determining who owns the mineral rights of a piece of property. The general rule is that a person who owns the real property at the surface also owns underneath it all the way to the center of the earth. A landowner generally owns the space up to the heavens and to the middle of the earth, but there are exceptions for things like reasonable air travel.
Even though the basic rule is that a landowner owns the land underneath them, they can sell their oil and gas mining rights or lease them. Selling the oil and gas rights without selling the land itself is called creating a split estate. When there’s a split estate, the owner of the oil and gas rights alone has the authority to determine when and how to mine or whether to lease their rights to another owner.
In cases of a split estate, the entity that owns the oil and gas rights has the right to reasonable use of the surface of the property in order to mine. They may not disturb homes or buildings, and there are certain setback requirements to follow depending on the specific rules in the location where the property sits. However, the courts have decided that oil and gas rights are meaningless without reasonable access to the surface land to use those rights.
Rule of capture and correlative rights
In order to effectively advise their clients, an oil and gas attorney must understand the rule of capture and the correlative rights rule. Under the rule of capture, a landowner may capture and mine all of the oil and gas that sits underneath their land. If a resource runs onto their land from another piece of land, the owner has the right to capture it for their own use. The rule of capture encourages landowners to explore the resources on their property because it allows them to keep what they find.
However, the correlative rights rule requires an owner to go about their work without waste or negligence. An owner can’t be so eager to mine that they work in a way that prevents complete exploration and capture of the available resources. An oil and gas attorney must help their clients determine how to conduct business in a way that doesn’t violate the rules of conduct in the oil and gas industry.
Oil and gas leasing
A significant amount of oil and gas law involves creating lease agreements for oil and gas mining. An oil and gas attorney must know what to include in an oil and gas lease in order to make it effective and favorable for their clients. For example, an oil and gas lease must include an accurate description of the property to be leased. The duration of the lease and payment terms must be clear.
An oil and gas lease typically allows the leaseholder to continue their work beyond the original term of the lease as long as the drilling continues to produce oil and gas. In addition, an oil and gas lease typically presumes that the lessee has reasonable access to the property in order to carry out their work. Most lease agreements contain a provision that a relieve the lessee from responsibility if there are unavoidable delays because of things that are out of their control.
The permitting process
In addition to negotiating contracts, oil and gas law also involves securing the necessary permits before drilling. Most of the time, a driller must secure a permit from a state agency in order to begin new work. When drilling is off-shore or on federal land, a federal government agency may have the authority to issue permits for drilling. Oil and gas attorneys must know what entity to approach to request a permit and how to appropriately make a permit application on behalf of their client.
A significant amount of oil and gas production occurs off shore. The federal government leases space offshore to companies that want to drill in those places. Even though most oil and gas law is state law, federal laws and regulations apply to off-shore drilling operations. The Bureau of Ocean Energy Management manages off-short drilling regulations and permitting on behalf of the U.S. Government.
Who practices oil and gas law?
Oil and gas attorneys represent individuals and entities who are involved in all aspects of oil and gas production. Because many oil and gas companies have large legal needs, they’re likely to employ attorneys as in-house counsel to handle all of their legal work. Like the companies that drill, landowners need attorneys to help them negotiate and draft agreements. Attorneys also work for the state and federal governments to create regulations and manage the permitting process.
Even though oil and gas law is primarily transactional law, oil and gas disputes may also involve litigation. When issues occur, litigation may be needed to resolve the dispute. Lawyers may draft pleadings, conduct discovery and present cases in contested hearings. Depending on the needs of their clients, oil and gas lawyers may be litigators as well as transactional attorneys.
In states with significant oil and gas production, oil and gas law may be tested on the bar exam. Many oil and gas attorneys live and work in states that have significant amounts of oil and gas production. Oil and gas laws may vary considerably from one state to another.